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Multinationals Should not be Scared of Using Proper and Transparent Transfer Pricing Activity

Multinationals Should not be Scared of Using Proper and Transparent Transfer Pricing Activity

"Multinationals are being urged not to run scared of implementing transfer pricing strategies in the face of increased scrutiny by jurisdictions across the world.{C}

Transfer pricing has, in the last two years, come under intense scrutiny for jurisdictions looking to ensure that their tax take is not impacted and has recently resulted in some high profile cases, such as that of Dixons (DSG) and Astra-Zeneca in the UK, where large tax adjustments have been served on companies.

However, Transfer pricing remains essential to allow companies to allocate profits across jurisdictions around the world, to maximise efficiency and optimise tax rates, ever more important in the face of the extreme market fluctuations seen in the economic crisis.

A panel of Tax experts and delegates at a global tax conference for multinational companies, held in Berlin by Taxand, today debated the future use of transfer pricing strategies and how it is viewed by jurisdictions around the world.

As multinationals expand into new markets they need to look carefully at the levels of scrutiny their sales and operations will encounter, an example of which is the benefits test in India, and carefully consider the value assigned to the assets or skills being transferred in each jurisdiction.

Also valuation techniques across the world do not always follow the OECD guidelines (for example Germany does not in relation to certain areas) and so multinationals need to work hard to ensure transparency.

That said, multinational companies should not be scared of implementing well prepared strategies. Whilst it may seem that many governments are cracking down on transfer pricing, they in fact simply want to ensure that fair levels of tax are being paid in their jurisdiction. What multinationals perhaps do not completely understand is that, in the case of fully transparent transfer pricing strategies, if a tax authority disagrees with your valuations in an overseas jurisdiction, then the worst that can happen is that the multinational will have to revert to its original tax position as penalties may not be imposed.

However, undoubtedly, transfer pricing is becoming more complex. By way of example, the recent case of Nestle in India examined levels of royalty payments based on the length of time that payments had been made and the services and knowledge to which they related. Moreover President Obama's recent moves to expand the definition of intangibles have made it even more complicated for companies transferring operations to the US.

In many jurisdictions, such as Canada and the UK, tax authorities are investing heavily in their transfer pricing expertise, enlarging their teams with economists and transfer pricing specialists to specifically scrutinise the actions of multinationals. Companies must act ensure that all transfer pricing activity is fully compliant and that the distribution or movement of intellectual property from high tax to low tax environments does not trigger high exit fees or fall foul of the varied and complicated rules.

Multinationals should not be running scared of transfer pricing, what should be remembered is that for many multinationals the scale of the level of tax effected by transfer pricing is considerable and it is therefore imperative that the planning of transfer pricing activities is comprehensive, transparent and will stand up to thorough scrutiny from tax authorities across the globe."

Frederic Donnedieu de Vabres, Chairman of Taxand

Media commentary released as a result of the Taxand 2010 Global Conference - Plenary Session III
Using Transfer Pricing to Plan Ahead
Presenting the main transfer pricing techniques across 10 jurisdictions; allaying fears re transfer pricing disputes and how to use transfer pricing to improve your bottom line.

For the synopsis of Taxand's 2010 Global Conference and presentations, visit our events pages.

Abigail Tarren
T. +44 20 7715 5243


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